For 9 months RBI has held on cautiously to the interest rates. However the cut in CRR by 0.25% has brought joy to bankers and the common man alike. We can expect lower interest rates on loans. Bankers also are not expecting to cut deposit rates - so the joy is doubled.

The Reserve Bank of India (RBI) on Tuesday slashed
its key lending rate and banks' cash reserve ratio (CRR) by a
quarter percentage point each, setting the stage for a recovery in
growth.

IDBI Bank was the first to take the cue and slash the rate. IDBI
Bank's loans, linked to Base Rate / Prime Lending Rate, will become
cheaper following a 25 basis point reduction in its Base Rate to
10.25 per cent with effect from February 1, 2013.

Royal Bank of Scotland (RBS), too, reduced its base rate by 0.75
percentage points to 9 per cent.

Other banks are expected to follow suit. Borrowing has been
sluggish and banks have been hoping that this rate cut will
encourage fresh loans. The largest retail loans come from real
estate sector. This sector has been slowing down due to high
interest rates and excessive prices. There has been a high build up
in real estate inventory.

What's more heads of various private sector banks as well as SBI
have stated that they will not be cutting deposit rates. So that
lending rates will fall, rates of fixed deposits are expected to
remain at the same level.

The RBI rate cut has had a buoyant effect on the stock market
too and it expected to ease the inflationary trend in India with
the release of funds to the tune of Rs18000 crores in the
market

Domino effect for the retail borrower - you

The potential real estate buyer can finally heave a sigh of
relief as one can expect to see both, a drop in interest rates of
home loans as well as a drop in realty prices.

Liases Foras Real Estate Rating & Research Pvt
Ltd, in its third quarter review of the residential market, says
the price of new launches was 24% lower than that of the existing
supply, indicating signs of correction and increase
in affordable housing.

The benefit for retail borrower is perceptible. Let's take the
example of a new borrower who takes a loan of Rs 50 lacs for 20
years. He makes a saving of over Rs 1000 per year or somewhat more
than Rs 2 lacs for the entire tenure.

Rates

EMI

Total Interest Payable

At 10.50%

INR 49,919

INR 69,80,559

At 11.00%

INR 49,082

INR 67,79,731

Savings per year

INR 10,044

Total Savings

INR 2,00,828

With the RBI reduction in rates banks are likely to pass
on the benefits to their consumers, this would be right time for
balance transfer of your loans as there is no pre-payment charges
now on floating rate loans.

It is advisable to opt for balance transfer (i.e. shifting to a
new lender) if you have at least 8 to 10 years left on a home loan
that is 15 to 20 years long), or if the difference in the new rate
and the old one is at least 1% per annum. Shop around with various
lenders to see who will give you the best offer. Keep in mind that
the new lender will want to assess your CIBIL Score and repayment
history, so it might help to get your CIBIL Credit report and
score.

Industry watchers expect that RBI will continue in this trend
and rates may come down further, so the good times for borrower may
continue.

Rajiv Raj
Rajiv is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India’s first credit bureau.

We are social

Thanks for Subscribing

Newsletter

Pay Securely

Net Banking

About CreditVidya

We, at CreditVidya, believe in empowering you. Because we believe that knowledge is not only power but also gives you a sense of belonging. We believe in supporting the consumers by not being their crutch but as catalysts and enablers.